quick sunday night. >> federal reserve chair drumm -- jerome powell told the peterson institute that they are working to avoid a deep recession. >> good morning and welcome to the peterson institute on economics. it is my pleasure and privilege to welcome back chair jay powell , the honorable jerome powell. , i just wantu know to remind people that he previously served under secretary of treasury under george h w bush. working on financial institutions. theeen that and joining board of governors in 2000 --

he was working on federal issues. and time when fiscal policy the interaction is critical, it is hard to argue we would have anyone better than jay powell. thank you for coming back to the peterson institute, chairman powell. >> thank you very much, adam. it is great to be back. i have some brief remarks and then i will look forward to our discussion. the coronavirus has left a devastating humid and economic toll in its wake. it has spread around the globe. this is a worldwide public health crisis and health care workers have been first responders, showing courage and determination and earning our lasting gratitude. so have the legions of other essential workers that have put themselves at risk every day on our behalf. as a nation, we have temporarily

withdrawn from any economic and social activity to help slow the spread of the virus. some sectors of the economy have been effectively closed since mid march. people have put their lives and livelihoods on hold, making enormous sacrifices to protect not just their own health and that of their loved ones but also their neighbors. while we are all affected, the burden has fallen most heavily on those east able to bear it. the scope and speed of this downturn are without modern precedent. significantly worse than anything since world war ii. we are seeing a decline in economic activity and employment and already the job gains of the last decade have been erased. since the pandemic arrived in force just two months ago, within 20 million people have lost their jobs. the fed survey be released tomorrow reflects findings similar to many others. among people working in

february, all most 40% making less than 40,000 per year had lost her job in march. this reversal of economic fortune has caused a level of pain that is hard to capture in words as lives are appended. this downturn is different from those that came before it. earlier, recessions were sometimes linked to a cycle of high inflation followed by fed tightening. the lower inflation levels of recent decades have brought a series of long expansions, awfully companied -- asset prices that reached unsupportable levels. thertant sectors from economy such as housing that boomed unsustainably. the current downturn is unique in that it is attributable to the virus. this time, high inflation was not a problem. there was no economy threatening

bubble to pop and no unsustainable boom to bust. the virus is the cause, not the usual suspect. something worth keeping in mind as we respond. today, i will briefly discuss the measures taken so far to offset the economic effects of the virus and the path ahead. governments around the world have responded quickly with measures to support workers who have lost income in businesses that have closed or seen -- seen a sharp drop in activity. the response in the united states has been particularly swift and forceful. --ay, congress has provided for state and local governments. about 14% of gdp. while the coronavirus economic shock appears to be largest on record, the physical response has also been the fastest and largest response for any postwar

downturn. at the fed, we also acted with unprecedented speed and force. after rapidly cutting the federal funds rate close to zero we took a wide array of additional measures to facilitate the flow of credit in the economy. that can be grouped into four areas, first, at red purchases of treasuries to restore functionality in these critical markets. liquidity and funding measures including discount window measures and swap lines with foreign and central banks. through -- also, facilities to more support -- support the direct flow to state and local governments. fourth, temporary regulatory adjustments to encourage and allow banks to expand their balance sheets to support their household and business customers.

we take action such as these, it would only be in a strainer circumstances. for example, our authority to extend credit directly to private, nonfinancial businesses and state and local government exists only in unusual circumstances and with the consent of the secretary of the treasury. when this crisis is behind us, will put the emergency tools away. while the response has been timely and large, it may not be the final chapter there given that the path ahead is highly uncertain and subject to significant downside risks. economic forecasts are uncertain at the best of times, and today the virus raises new questions. how quickly will it be brought under control? can outbreaks be avoided? how long will it take confidence to return? what will be the scope and timing of new therapies testing for a vaccine?

the answers will go a long way toward setting the timing and pace of the recovery. since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes. the overall policy response to date has provided a measure of relief and stability and will provide some support to the recovery comes. but the coronavirus crisis raises longer-term concerns as well. the record shows that deeper and longer sessions can leave behind lasting damage to the productive capacity of the economy. avoidable insolvencies and way on growth for years to come. long stretches of unemployment can damage or in workers' careers as their skills lose value and their professional networks dry up. the loss of thousands of small and medium-size businesses

across the country would destroy the life's work of many businesses and community leaders. and limit the strength of recovery. these businesses are a principal source of job creation, something we will need as people seek to return to work. a prolonged recession and weak recovery could discourage business investment and expansion, further limiting the resurgence of jobs and the pace of technological advancement. the result could be an extended period of limited productivity growth. we ought to do what we can to limit these outcomes. at the fed we will continue to use our tools to their fullest, until the crisis has passed and the economic recovery is underway. recall though that the fed has lending powers, not spending powers. a loan can provide a bridge across temporary interruptions, and those loans will help many borrowers. the recovery may take some time

together momentum and the passage of time can turn liquidity problems into solvency problems. additional support could be costly, but worth it if it helps avoid long-term damage and leaves us with a stronger recovery. recovery. this trade-off is one for our elected representatives. thank you again, and i look forward to our discussion. >> thank you, mr. chairman. i would like to start where you started. you, for a long time and since becoming chair have spoken about the distributional aspects of running the economy hot. until the pandemic hit, you were getting very close to something that looked genuinely like convergence in incomes for excluded groups. as you pointed out, it is those least able to air this burden

who were being hit right now. going forward, do you see it is possible to get back to the full employment we had? you mentioned scarring of workers. how much does quick action now to fit us in terms of longer-term unemployment rate? and also, in the past sometimes when people talk about histoesis, people say we can't come up, we can't get the unemployment down because of scarring. i think the fed is demonstrated in recent years you experiment. how do you see the federal in terms of its mandate on unemployment? chairman powell: first, let me say it was a great period to watch unemployment declined and

continued declining, and continued declining and not see either wage or price inflation move up. i think we've learned something very fundamental about our ability to associate unemployment levels of unemployment, with inflation or other imbalances. i think that is a lesson we will be caring for. it has also been, frankly, over the course of the last year or so with our fed listens events we made a series of 14 different events and engaged with from communities across america. including low and moderate income communities. what we heard was, this is the best labor market in 50 years or people's lifetimes.

their advice was, please keep this going. we are feeling opportunity we haven't felt, they didn't feel the first seven or eight years of the expansion but they started to feel that in years 9, 10, and 11. i think two months ago we were looking ahead more of that. it is particularly painful to see all of that put aside, at least temporarily. as i mentioned, the numbers show clearly that it is lower paid people who are bearing the brunt of this. although people are suffering all across the income spectrum. so, in terms of getting back, i y that probably over the course of the next month or so, unemployment will peak. then as we return to more normal levels of economic activity, it is a reasonable expectation that unemployment will start to

decline again. it may decline sharply, that it is also likely to remain well above the levels we saw earlier this year and all through 2019 and 2018, which were 50 year lows. it will take some time to get back to where we were. i have every reason to think we can get back. the economy should substantially recover once the virus is under control. so, ending with your final question, i think it is a major take away for the way i look and the way we are looking at the economy now at the fed. to place less weight on real-time estimates of the natural rate of unemployment. we see that we were able to move down to 3.5% and be there without really any signs of a reaction from inflation or other imbalances in the economy.

so, it is a place we can get back to, we will get back to. it will take some time. the main thing to do is get on that road to recovery and stay on it for a long period of time. that is what i expect will happen. >> terrific. i want to praise you for talking about not putting much faith in the stars and being more pragmatic. turning to the second main point. you emphasize the idea that war stimulus, but not just stimulus, more support for the supply side of the economy is needed and that it will probably have to be fiscal policy, not monetary policy that does that. in short, that if we cut off fiscal stimulus to small, too soon, it is a supply issue. that said, there are concerns

people raise about fiscal policy in the future. even though all reasonable fiscal hawks know we should be spending right now. what does fiscal responsibility look like a year or two down the road? especially if we still have 10%, 8% unemployment? how should we -- obviously this is for elected officials, but what type of principles which you want them to be thinking about in terms of the recovery of the economy? when i was at bank of england i got into a public tiff with the governor. governor king thought it was the role of the governor to lecture parliament. i didn't. chairman powell: we don't play a formal role in fiscal policy. meaning that, we wouldn't take a position, i wouldn't take a position in supporting a particular bill. i might answer questions privately from members, but it is not our role to supervise

congress. it is the other way around. we are a creature of congressional action. they have oversight over us. over time, i have said things that are fairly high-level about getting back on a sustainable fiscal path. i do think that is important and appropriate because it is important for the long run of the economy, which is part of our bailiwick. it's worth remembering, congress has moved quickly and with real force here. appropriately so. this is the biggest shock our economy has felt in modern times and this is the biggest fiscal response. it came very quickly. that is a good thing. the issue is, there is a lot of uncertainty ahead.

it may take even just a few more months then we would like for the economy to recover. my colleagues and i have been speaking to a wide range of leaders of not-for-profit, for-profit businesses all across the u.s. economy. what comes through is, there is a sense -- our growing sense, i think -- that the recovery may come more slowly then we would like. but it will come. that may mean it is necessary for us to do more. the trade-off is, we know that long periods of unemployment shadow people's lives en masse. we also know that rates of encryption can weigh on economic activity for years. small and medium-sized businesses are the heart of our economy. those are typically, often anyway, the product of generations without work to create. if they become insolvent just

because economic activity doesn't recover fast enough, i think we would lose more than just business. i think we lose something fundamental and it won't be able to be replaced quickly. in terms of fiscal discipline, i absolutely believe that we must, and indeed we will eventually, have to return to a sustainable fiscal path. that just means you have to get the economy growing faster than the data. and have that happen for a long period of time. and gradually reduce the ratio to the size of the economy. that is how you do it successfully. many countries have done it successfully. i do think the time to do that is doing good times. you know, when the economy is

strong and unemployment is low, that is the time to be addressing those concerns. now, when we are facing the biggest shock the economy has had in modern times, is for me not the time to prioritize considerations like that. i think we can come back to them fairly quickly. just to say, a few years down the road and the economy is well and truly recovered. or, at least mostly recovering. >> thank you for that. turning to some operational policy issues. of course, reporters would love to ask you about negative rates. i would like, before getting what i am sure will be your answer on that, i would like to ask a little more deeply about the u.s. context. what we are looking at is qe and rate cuts are substantive. so that if you can do more qe for all of these various credit facilities, you could always

scale that up and not bother with negative rates, which may have negative political effects. the flipside is that, on the others there are people who argue negative rates have a particular use in terms of currency valuation, but also as my colleagues have argued, it my need even more qe. how do you feel about the arguments for and against negative rates in the u.s. at this point? chairman powell: let me start by saying that the committee's view on negative rates really has not changed. this is not something we are looking at. we chose not to implement negative rates during a global financial crisis. as you pointed out, on asset purchases when we were at the

zero bound, we've said that we continue to rely on those tools which are tried and are now a part of our toolkit. in fact, we revisited this back in october. revisited this question and the minutes said that all participants currently did not judge that negative rates did not appear to be an attractive monetary policy. so, i would say a couple of reasons behind that. one is we feel that our tools work. the tools that we have used. for guidance and asset purchases work. we are now doing these free facilities, we think they work too. we think we have a good toolkit and we have evidence it works. i think that is what we will be using. also, the evidence on the effectiveness of negative rates

is very mixed. there is research that says they have been effective. there are plenty of doubters. the issue really is, the concern over interrupting the intermediation process. reducing bank profitability, thereby reducing the availability of credit in the economy. it is an unsettled area. i would call it -- i know there are fans of the policy, but for now it is not something that we are considering. we think we have a good toolkit and that is the one we will be using. >> delighted to hear you say that. let me turn out to another question about your toolkit. what the federal reserve does is provide people with liquidity,

with loans. in the past financial crisis, one issue was, money was put out through qe and other measures, but it didn't get invested in the real economy because the old keynesian notion of pushing on the string. there was great uncertainty, expectations were poor, and so on. what makes you think that some of the facilities being made available now will be taken up in a way and used in the real economy in a way that they weren't in 2008-2010? god willing, i know you want to help these people. those sectors may shrink. in the real world. why do we think they are going to take these loans? chairman powell: well, as i mentioned in my remarks, we can't address liquidity problems.

companies that are really very directly affected by the coronavirus are in a special place. the airlines, hotels, some restaurants. really, we will need to see the economy recover quickly for them to enough it from this. we are in a position where we will lend to companies based on their earnings from 2019, as we have said. if they qualify, we will lend to them up to that limit. we are willing to take that risk. as i mentioned, i think we will be in a position to help many, many companies. i hope that is the case with these facilities. we have helped already, through the announcement effect where markets have loosened up and started to function much better than they were just a couple of months ago at the early part of the crisis where markets were not functioning well. you see that and that has enabled many companies to finance themselves. that is a good thing. it may mean that we actually are

needed. i think and main street, those are companies that don't have market access. they will need these loans. we want to provide them. let me just say about main street -- for those who don't follow this, this is for companies that have less than $5 billion in revenue. fewer than 15,000 15,000 employees. it is probably for companies that don't have access to the capital markets. these are the great small and

medium-sized companies. an incredibly diverse group of companies, very diverse industries and credit needs. we are trying to create products that address as broad a swath of those as we can. operationally, it is very complex. people have credit agreements, they have existing credit agreements, so we have to work through that. we are in the process of doing that. i think main street will be able to go live in a couple of weeks. i am hopeful we can meet the demand that is out there. we are committed to continuing to adapt. this is completely unique in our history so, we are learning as we go. as we go we will be willing to adapt. i did make this point in my remarks. we can make loans to insolvent borrowers. who don't have access to other sources of capital. that is what the law requires of us. as i mentioned, the passage of time is all it takes to turn a liquidity problem into an insolvency problem.

we will be a big help for a while, but up or longer period of time, it may be that more physical help is needed. again, i don't prescribe how, i just say that it could be costly, but the benefits would also be potentially substantial. >> thank you. another area where you and your colleagues were ahead of the curve before the pandemic was, you are putting emphasis on the effect of events abroad on the u.s. economy. not just trade. maury did a good paper on that for the conference last year. i was wondering if you could take us through how you see what is happening in the rest of the world affecting u.s. recovery right now? and how do you see light into the dollar, which was enabled by the swap lines the fed and central banks provided? how that benefits the u.s. economy as well as the world? we are, of course, the peterson

institution, so we think it does matter. chairman powell: the global economy and even more so the global financial markets are tightly integrated. at this point in time, over the years that is become more the case. it is in our interest for the global economy to be strong. we need people to buy our exports and in general, we benefit from a stronger global economy. in terms of the swap lines, we are the world's reserve currency. all around the world, people fund economic activities from time to time. in dollars. they buy credit assets, for example, u.s. mortgage loans. they wind up being bought by foreign banks. so that these dollar funding markets around the world.

they are actually fairly important to the u.s. financial markets and the u.s. economy. they are effectively providing credit to u.s. households and businesses through these funding markets. you are right, as the reality of the pandemic dawned in a couple of months ago, there was understandably in financial markets a flight to safety. that meant short maturity, fixed income, u.s. dollar sovereign credit. that left remarkable, unprecedented levels of illiquidity. resolve swap basis widening and threatening those dollar funding markets. also, playing a role in what was happening in the u.s. treasury market. which was becoming more liquid and dysfunctional. what swap lines do is, we provided dollar, we swap dollars for local currency with the central bank. that bank faces off against its banks and provides funding. it had a very constructive effect on calming down those

markets. you know, reducing the safety premium for owning u.s. dollars. it has played a role in supporting a return to more normal conditions. more broadly, i think what we have been able to do is to help markets return to more normal functioning, which has the effect of buying time. buying time for health care professionals, buying time for governments to respond at a time

when the financial system is working. and we don't have to face dysfunctional markets and the loss of credit availability to companies and households. those measures on the swap lines and the facilities we have done have really been somewhat effective at achieving that. >> thank you so much jay. we are out of time and you obviously have a world to continue to say. i want to express my admiration for the whole team at the federal reserve. you are providing competence, calm, concern for the right issues and nonpartisan fact-based work at a time when we needed. thank you. chairman powell: thank you very much, adam.

>> watched testimony from rick wright, a high-ranking federal silence -- scientist. he was recently removed from his post of the international institute of health. there were here from mr. bright on scientific integrity during the covid-19 response. c-span,e airing live on online on c-span.org or listen live on the free c-span radio app. >> we had a chance to talk with several legislators over the past few weeks about their experience with the pandemic. joining us from very, representative blaine meyer. he is a member of the sow committee on coronavirus crisis. good morning to you. start by talking about this new subcommittee? what do you hope to get out of it? guest: speaker pelosi says it is supposed to pre